Global Purchasing Excellence - knorr-bremse.de · field, for over 100 years Knorr-Bremse has been driving progress in development, production, marketing and service Our close, trust-based

Global Purchasing Excellence

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Content 1 Strategic role of purchasing ��4

2 Focus on global sourcing markets �� 12

3 Supplier management �� 16

4 Value analysis, advanced sourcing

and demand management �� 20

5 Tools and processes �� 24

6 Purchasing controlling �� 26

7 Sourcing logistics �� 28

8 Employees �� 32

9 Code of Conduct �� 34

In the Knorr-Bremse Group, our goal is to establish a world-class purchasing organization that is a leader in its field� We aim to be a reliable partner to everyone along our value chain, making a substantial and, in particular, ongoing contribution to the success of the Knorr-Bremse Group�

Global Purchasing Excellence

Dr� Tobias BuckManagement Central Purchasing Knorr-Bremse Rail Vehicle Systems

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ForewordKnorr-Bremse is the world’s leading manufacturer of braking, door and air conditioning systems for rail vehicles� As a technology pioneer in this field, for over 100 years Knorr-Bremse has been driving progress in development, production, marketing and service� Our close, trust-based relationship with our suppliers is a significant factor contributing to our successful market position�

Purchasing has long since expanded its focus beyond cutting costs and ensuring that global production locations are supplied with materials� By partnering with innovative suppliers, a modern purchasing organization contributes significant value to the growth of the com-pany and plays a key role in the quality of the end product�

This last factor is especially important at Knorr-Bremse� As a manufacturer of systems that are critical to vehicle safety, quality is our top priority� For all these reasons, Knorr-Bremse’s purchasing organization forms an integral part of the Knorr Excellence model� The goal of the organization is to fulfill its function in the company’s value chain by applying its purchasing expertise as well as modern methods and pro-cesses� Driven by this objective, our Global Purchasing Excellence (GPE) program ensures that Purchasing continues to develop and build on its successes around the world�

This brochure serves as a guide to Global Purchasing Excellence at Knorr-Bremse Rail Vehicle Systems� In keeping with Knorr Excellence, it documents our goal of continuously improving our purchasing organization and processes�

Dr� Lorenz Zwingmann Spokesman of the Executive Board

Knorr-Bremse AG

Dr� Robert Wassmer Chairman of the Executive Board

Knorr-Bremse Rail Vehicle Systems

Hartmut SieversManagement Central Purchasing Knorr-Bremse Rail Vehicle Systems

1The strategic role of Purchasing

Urbanization, environment, safety and globalization are the meg-atrends of the future� For more than 100 years Knorr-Bremse has pioneered the development and marketing of state-of-the-art braking systems and numerous other products and services in the rail vehicle segment�

Based on a global market presence, our business policy was de-veloped with a view to long-term success� Our company’s stated objective is to provide technical solutions that precisely meet these various needs� In addition to our technology leadership in selected fields of rail vehicle engineering, our top quality products and glob-al focus have enabled us to become world market leader�

However, our global competitors never rest� They are constant-ly on the move� The pressure of competition keeps growing� Cost squeezes, shorter lead times, greater flexibility – these are the watchwords� The need to innovate to meet increasingly specialized customer requirements is stronger than ever�

Against this backdrop, Purchasing clearly has a key role to play in the performance of the company as an important link in the val-ue chain� This means that a well-defined purchasing strategy is one of the pillars of our corporate success�

This strategy addresses the intensifying competitive forces that im-pact Purchasing to an exceptionally high degree:

> Sales markets are becoming more globalized and competitive� Customers are professionalizing their purchasing functions and awarding contracts based on very closely defined tenders� These factors are communicated to Purchasing through the internal value chain and the function must adapt accordingly�

> Customer expectations are rising as lead times grow shorter� The quality aspects of rail transportation are increasingly becoming a subject of public debate and there is no room whatsoever for compromises�

> Sourcing markets are becoming more volatile� Periods of rapid economic growth make competition for scarce resources more intense� Commodity markets are volatile and at the same time prices continue to climb�

In light of these competitive forces, Purchasing must make a sub-stantial and, crucially, ongoing contribution to corporate success� In the case of Knorr-Bremse we are talking about an organization with an annual purchasing volume of more than two billion euros that needs to be kept running smoothly�

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Principles & mission statementResponsible for substantial purchasing volumes and anchored in the corporate framework, Purchasing plays a key role in Knorr-Brem-se’s success – and has developed its strategic position accordingly� Our practices are guided by principles which make an important contribution to corporate performance by defining objectives and applying state-of-the-art instruments and processes�

Acting on these principles, Purchasing must rise to a challenge that goes above and beyond ensuring the availability of materials and ne-gotiating cost-effective supply contracts. We see Purchasing in a much more broadly defined role going forward. Consequently we are contin-uing to work on its strategic positioning within our company as well as vis-à-vis the procurement market.

PURCHASING AS A DRIVER OF PRODUCTIVITY Competition is necessary to ensure progress� And progress is es-sential to producing the best possible product in the most cost-ef-ficient manner possible while meeting all the requirements� This is why we do not see our suppliers as a low-cost source of materials at one end of the assembly line� Rather, our suppliers stand on a level playing field with our in-house development and production teams� Through target-oriented make or buy decisions we encour-age competition between internal and external R&D and produc-tion, making a lasting contribution to productivity and ensuring the most efficient use of internal resources�

PURCHASING AS A DRIVER OF TECHNOLOGY AND INNOVATIONPurchasing is where our company meets the market� We identify technological advances in the sourcing market and transport them into the Knorr-Bremse Group, where they can be used to continue the expansion of our industry-leading position in terms of costs, technology and innovation�

PURCHASING AS AN INTEGRATED PARTNER IN MODERN LOGISTICS SYSTEMSWe see our suppliers as strategic partners in our shared business success and so we aim to incorporate them in our logistics systems as well� “Knorr-Bremse InSupply” is the name given to the targeted integration of suppliers in our procurement logistics� It ensures an

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optimized and reliable supply of materials for our production oper-ations while continuously monitoring costs� With these points in mind, we have formulated a mission statement for Purchasing:

In the Knorr-Bremse Group, our goal is to establish a world-class pur-chasing organization that is a leader in its field. We aim to be a reliable partner to everyone along our value chain, making a substantial and, in particular, ongoing contribution to the success of the Knorr-Bremse Group.

The stratetic role of purchasing The stratetic role of purchasing

MISSION

TOOLS & PROCESSES

ESTAbLISH A wORLD CLASS PURCHASING

ORGANIzATION

TARGETS

LEVERS

TOTAL COST SUPPLY

- unit costs- quantity

- working capital

- forecasting- asset management- 2nd source

AVAILAbILITY

INSTRUMENTS

Global Kb InteGratIon

This pyramid illustrates the approach taken by Knorr-Bremse Purchasing�

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Targets, levers and instrumentsTOTAL COST OF OwNERSHIP (TCO)Every product has its price – and not just the price of acquisition� Of course the latter plays a key role in most purchasing activities, but it is not the only consideration� It is our aim to keep an ongoing record of all costs associated with the process of sourcing the prod-uct and to analyze and optimize these costs�

Logistics, transportation, packaging, warehousing and quali-ty-related costs are important line items that influence our sourc-ing decisions� Collecting this information requires a lot of time and effort� In the end, however, there is a pay-off for us and our suppli-ers in the shape of overall cost optimization�

ACTUAL AVAILAbILITYBe it third-party services, materials or components – we are respon-sible for ensuring 100 percent material availability� To prevent the negative impacts of supply bottlenecks, we have a second-source strategy in place for critical groups of components and production technologies�

Constant monitoring, regular quality testing of purchased com-ponents and working closely with our suppliers (e�g� through con-tinuous supplier development and supplier audits) allow us to de-tect any problems at an early stage and react quickly to changing situations�

„bEST-IN-CLASS“-INSTRUMENTS A number of effective instruments are part of Global Purchasing Excellence, including SAP Business Warehouse, SAP Supplier Rela-tionship Management, our Material Price Index, EDI and our suppli-er portal� Just as Knorr-Bremse’s products set standards for techno-logical innovation, we apply best-in-class instruments in Purchas-ing�

Our objectiveKnorr-Bremse has a presence on every continent� Accordingly, we have a supplier portfolio that extends around the world, making it especially important for Purchasing to have a global focus� As early as the product development stage, we ensure that our suppliers are closely involved�

We aim to establish long-term relationships based on trust and are willing to share our expertise – the result of over a century in the field – with our suppliers� In return, we draw on their knowl-edge base� We use regular benchmarking to ensure that our strate-gy remains effective and our strategic and operational approaches live up to the high standards of modern purchasing management�

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Our organizationPurchasing also reflects the Knorr-Bremse matrix organization, meaning that it operates in three dimensions� Although the priori-ties and approaches of these dimensions differ, together they achieve an optimal purchasing result�

Our Commodity Management develop a commodity-group strategy that is coordinated across all our locations� To meet Group targets, it establishes an effective supplier base and leverages Group-wide synergies between our locations and centres of com-petence�

Our Locations make certain that our standard business pro-cesses run smoothly and with a high degree of automatization, re-sulting in a cost-effective and secure flow of materials� At the same time, they work to optimize the total cost of ownership (TCO) over time – from project to finished article�

Our Centres of Competence have purchasing functions that work closely with development teams to establish an effective cost structure for each end product� They have sole responsibility for keeping an eye on the end product at cross-locational level, while maintaining a focus on customer projects and internal develop-ment projects at global level�


Purchasing is integrated in the matrix organisati-on in our locations and CoCs�

COMMODITIESDirect purchasing

COMMODITIESIndirect purchasing

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LOCATION 3

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RolesDIRECT PURCHASINGDirect Purchasing is responsible for sourcing all commodities, arti-cles and components which we sell to our customers, either fol-lowing further internal processing or directly as part of our systems� Having worked to develop and improve Direct Purchasing in the past, we believe that we have achieved a very high level of effec-tiveness and integration�

The quality of our products, for example, can be tracked all the way back to the part numbers of their components, while the per-formance of our suppliers can be assessed in line with comparable metrics across the Group� The same applies to our purchasing costs, which can be tracked by article number over a long period of time� Everything that is sourced by Direct Purchasing has a direct impact on the success of our company� This means that we cannot afford to rest on our laurels, but must continue to strive for excel-lence�

INDIRECT PURCHASINGIndirect Purchasing is responsible for sourcing all goods and servic-es that we depend on to work effectively and efficiently within our company� These processes are complicated by the fact that they cover a broad spectrum of purchased goods, including items or services that are sometimes only needed once, while a lack of ma-terial numbers makes it difficult to measure performance over

time� Benchmarking has shown that we are operating at a very high standard in many commodity groups� It is our aim to roll out these best-in-class approaches to all regions and countries and achieve a uniform level of performance�

SOURCING, PURCHASING, MATERIAL PLANNINGFrom selecting the supplier to the actual purchase and finally the use of the materials in production – a transparent process chain requires the clear allocation of responsibility�

Drawing on the Knorr-Bremse Group’s objectives, Commodity Managers work with the locations and CoCs to define a strategy that develop a supplier base to meets their individual needs and serves as a source of external expertise for the Group� By continu-ously evaluating the global sourcing market for the required spec-trum of parts and/or services, Commodity Managers ensure that we can work with the established supplier base to optimize quality, delivery and cost performance� In cooperation with colleagues from operational units they maintain a constant focus on supplier performance� They are also responsible for realizing synergies be-tween locations and centres of competence across the Group�

buyers are responsible for keeping an eye on material and logistics costs as well as compliance with our high quality stand-ards� They develop the relationship between supplier and location and ensure that third-party services are smoothly integrated into our company’s standardized processes� Working closely with our

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developers, they try to modify the cost structure of future products to our advantage at an early stage�

Material planners keep a constant eye on the availability of materials, the delivery performance of each supplier and our inven-tories to ensure that our modern production processes operate ef-fectively� They monitor the defined standards and address non-compliance whenever necessary and possible� They maintain close, day-to-day contact with the individual suppliers, providing feedback on current performance and keeping the suppliers in-formed of upcoming developments in the production sector�

In Indirect Purchasing, the role of material planner is performed by the requesters� As the representatives of their departments, they initiate requisitions, outline specifications and are responsible for ensuring that the supplier provides the required services� They serve as the primary point of contact for Purchasing�

By aligning the processes with the type of sourcing in question, we en-sure that the specific requirements of each purchasing transaction are optimally met. Here we strike a balance between an appropriate de-gree of centralization, the best possible realization of synergies across the Group and strengthening the responsibilities of our locations and CoCs. The decentralized units that are primarily responsible for reach-ing our corporate targets.


TOOLS AND PROCESSES

PURCHASING CONTROLLING

SOURCINGCommodity Manager

PURCHASINGBuyer (Location)

MATERIAL PLANNING Material Planner (Location)

2Focus on global sourcing markets

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We aim to make optimal use of sourcing markets by contracting with the best suppliers for the materials and services we purchase� In a world that is increasingly networked, we make the most of the opportunities afforded by global sourcing while at the same time working to minimize the associated risks�

We have set ourselves the goal of procuring a significant por-tion of our purchasing volume in the sourcing market that best meets our total-cost criteria� Our purchasing departments identify sources offering high quality, attractive prices and optimal logistics and contract with them to obtain the materials and services that our company needs� We aim to cover all relevant sourcing markets� In addition to traditionally important markets and Central Europe-an countries such as Hungary, the Czech Republic and Slovakia, we are also focusing on markets such as China, India and several others in Southeast Asia – in other words, on low-cost and best-cost coun-tries�

There is more to an optimized global sourcing structure than simply locating specific materials or services which the company needs for its value chain� As a developer and manufacturer of sys-tems which are critical to vehicle safety, it goes without saying that we make no compromises when it comes to quality� We are ex-tremely careful in our selection of partners, and we also make sub-stantial investments in their development� At the same time it is necessary to build a logistics concept that ensures an optimal flow of materials, taking into account factors such as availability, stocks, flexibility, lead times and transportation costs�

The strategic task of evaluating sourcing markets, in order to identify reliable partners and promote their development is the responsibility of Corporate Purchasing, the CoCs and our locations� At Group level, a dedicated Global Sourcing Department focuses specifically on Asian sourcing markets� Global Sourcing acts as an internal service provider, offering integrated solutions to our centers of competence and locations and helping generate sub-stantial added value for the entire company�

Global SourcingGlobal Sourcing’s key responsibility lies in contracting with suppli-ers in the Asian markets� In addition, it helps to coordinate the in-tra-company activities that allow components sourced in a particu-lar market to be ultimately distributed within the Knorr-Bremse Group� Different sourcing markets have different characteristics and are subject to certain market and currency fluctuations� Against this constantly changing backdrop, Purchasing has the further key task of presenting all costs related to quality and on-time delivery in a transparent manner that allows comparison�

This takes the form of a clearly structured total cost of owner-ship (TCO) analysis for each individual case; a calculation which ex-tends to the landed costs – all costs incurred on the often long path to the final destination�

A number of process steps illustrate the usual sequence of a project aiming to contract with a new supplier in new sourcing

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markets� Usually the initiative comes from our locations and CoCs, who have to cover specific needs through local sourcing (to fulfill local content requirements, for example)� As a first step, Purchasing (Global Sourcing) identifies potential sources of supply and pro-vides the locations or CoCs with additional information such as ex-isting technologies, production methods, customer structures, business plans and/or SWOT analyses� Based on the results of a risk analysis and feasibility study, the internal customer, Commodity Management and the Global Sourcing team make a fundamental decision about whether it makes senseto proceed�

If this is the case, they next initiate the formal process of re-questing a quotation� Product details such as drawings, specifica-tions, test standards and projected quantities are included in the request for quotation (RFQ)� Based on this, we contact the suppliers under consideration in the identified markets – both new suppliers and those we have worked with before� If the submitted bids prove attractive and the Purchasing team assesses the conditions posi-tively, the potential new suppliers are subjected to a quality audit� These audits are necessary to prove that a supplier can meet our high standards for safety-critical components�

This is followed by the core function of Purchasing: The re-ceived bids are compared and potential cost savings are calculated based on the details of the RFQ, allowing the complete Purchasing

team – Commodity Management, Global Sourcing, location and CoC – to make a substantiated decision for or against switching suppliers�

If the decision is in favour of a new supplier in a selected sourc-ing market, Purchasing (in Asia the role falls to Global Sourcing) lev-erages its expertise and competence to assist in the roll-out pro-cess until series production of the components is well established� Through this process, our Purchasing team helps ensure successful, sustainable entry into global sourcing markets and provides long-term support to its internal customers�

Focus on global sourcing markets

POTENTIAL PREFERRED SUPPLIERS

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PREFERRED SUPPLIERS

QUALIFIED SUPPLIERS

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SUPPLIER PERFORMANCE

3Supplier management

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Having the right suppliers is an important factor in Knorr-Bremse’s success as a company� In keeping with our purchasing strategy, we regularly scrutinize the performance, quality and competitiveness of our suppliers with the aim of achieving continuous improve-ment in these areas�

Supplier evaluationOnce we have chosen to work with a certain supplier, performing assessment is an important aspect of supplier management� We conduct these evaluations once a year using a centralized process� The end result is a transparent classification we can use to develop a strategy and specific measures, which we then pursue with the supplier concerned�

We assess both the competitiveness and the performance of our suppliers� Competitiveness defines the importance of the sup-plier to Purchasing� Performance is concerned with criteria such as flexibility, on-time delivery and product quality�

As a globally active company, it is in our interest to ensure that the results of our supplier evaluations can be easily compared� With this in mind, we have developed Group-wide criteria that reflect our defined purchasing goals as precisely as possible – and we re-view and update these criteria regularly� These criteria focus in part

on hard facts which we obtain from our purchasing systems, such as key performance indicators (KPIs) and other data� However, soft facts also play a role in our assessment�

Results of the evaluation are calculated using a defined, per-cent-based weighting system� This not only provides a compre-hensive and precise assessment of the supplier’s current status, but also shows areas where there is room for improvement� The evalu-ation also forms the basis for our supplier classification, a cross-lo-cational standard defined by Commodity Management with joint contributions from Purchasing and Quality� Using classifications ranging from “suppliers to be eliminated” to “preferred suppliers,” each category is linked to an underlying strategy for working with the supplier in question� The strategy is supplemented by individu-ally defined measures as needed�

It is our aim to establish at least one preferred supplier for every product segment� In addition to outstanding quality, cost structure and on-time delivery, a preferred supplier must fulfill other strin-gent criteria� In return, we will plan to boost purchasing volumes with this supplier�

SOURCINGnew SuPPlieRS

PURCHASING ObjECTIVES

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Supplier management cycle

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Supplier risk managementWhen external suppliers have problems filling orders, it can mean significant risk for our company� The preventive measures defined by our effective supplier risk management system are aimed at minimizing this risk to the fullest extent possible� Supplier risk man-agement helps us identify preventable risks as early as possible and raise awareness in all affected areas�

At least once a year we evaluate the supplier risk for vendors who supply articles that have been classified as critical or whose purchasing volume is significant� This evaluation is based on a sys-tematic process that identifies and assesses potential risk� We then initiate risk management measures on the basis of the findings�

Cooperation between supplier and customer results in a cer-tain degree of interdependency – which must be kept reasonable and proportionate, however� We see the greatest risk in becoming too dependent on any one supplier� The higher the dependency, the greater the danger to our company if the supplier cannot deliv-er� For this reason, there is a hypothetical question that plays a cru-cial role in supplier risk management: “If this supplier was suddenly unable to fill our orders, how long would we need to obtain the materials, goods or services from an alternative vendor?” We use a checklist of standardized questions to assess our degree of de-pendency; if it is too great, we work to reduce it in a timely fashion�

The second step of the evaluation is analyzing and identifying financial risks at an early stage� In the worst case, financial risks can lead to insolvency and an inability to provide contracted goods or

services� We therefore conduct a financial risk assessment of all suppliers for whom we have identified a high degree of dependen-cy, analyzing KPIs such as return on sales, net income and equity ratio� We examine this data in the context of the overall economic climate and evaluate trends over recent years�

Standardized templates and benchmarks that we have devel-oped in close cooperation with Controlling? are applied across the Group to assess our dependency on suppliers and calculate the probability of non-delivery� If the risk factors exceed a defined threshold, we initiate preventive measures to lower our dependen-cy� These can range from modifications to the contract to establish-ing a second supply source� At the same time, where we have iden-tified an increased risk of non-delivery, we inform all concerned parties within our company so we can introduce appropriate and timely measures in all divisions�

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Supplier management Supplier management

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Value analysis, advanced sourcing and demand management

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In addition to ensuring security of supply, Purchasing’s second pri-ority objective is to obtain sustainable and lasting cost reductions� Value analysis is the most effective path to reaching this goal� By regularly reviewing costs, value analysis identifies the value of cer-tain functions – and determines which of these functions actually have to be purchased�

value analysisUnderstanding the cost structure of purchased materials is an es-sential part of value analysis� To achieve this, the Purchasing team must not only be well informed on cost factors such as commodity prices, hourly rates and testing periods, but also have an under-standing of production and manufacturing processes� By compar-ing our analysis of the cost structure with the prices we currently pay, we can identify effective arguments to use in price negotia-tions with the supplier� It is not our goal to relentlessly drive down acquisition prices� Rather, we view this as an opportunity to partner with our suppliers to optimize cost aspects of the production pro-cess to the benefit of both parties�

At the same time, when our analyses identify potential cost sav-ings for a typical component, we try to apply these savings to a broader spectrum of parts� We compare the cost structure of simi-

lar components so that the costs within a product family can be parameterized� When these are set in relation to actual prices, here too previously unrecognized savings potential often comes to light�

Value analysis involves systematically examining whether the importance of a specified element is proportionate to its cost� The goal is then to modify the specifications of the product we need to achieve an appropriate balance between cost and functionality� This usually leads to a tangible reduction in production costs� Ideal-ly, value analysis is carried out as part of the development process in the context of a design-to-cost approach� Specific measures might include widening tolerance ranges, changing the material, modifying the manufacturing process or even eliminating certain components�

Here too our employees are called upon to play a vital part� Clearly, value analysis can only succeed with a cross-departmental team, and it is essential to have a good grasp of the function of the purchased component within the system as a whole�

How demand management cuts costs e.g. travel expenditures

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Advanced SourcingMany factors that affect costs are defined early in the development process� Advanced sourcing therefore involves Purchasing in the development of new products from an early stage� Our goal is to minimize the risk of suppliers being selected who are suboptimal from a purchasing point of view – which would severely limit our options at later phases of the development process�

Advanced sourcing means that Purchasing acts as a service provider to the Development team - observing and analyzing the market, initiating contacts with potential suppliers, identifying pos-sible alternatives and prioritizing cost factors during the develop-ment stage�

demand managementIn Indirect Purchasing, “demand management” is the phrase used to refer to the idea behind value analysis� It means regularly exam-ining the specifications and cost drivers of the services we pur-chase and documenting them for our internal customers� In this way we make it possible for internal customers to modify their de-mand behavior to the benefit of Knorr-Bremse�

One example of a specific measure is a change in the approach to planning and booking business flights� Generally speaking, the earlier a business traveler plans and books their flights, the more reasonable the price� Since most business travelers can usually book their flights well in advance, we can optimize costs without sacrificing the comfort and services experienced by the traveller�


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Advance booking period


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The larger the organization, the greater its need for standardized processes� Only with the help of such processes can employees work together efficiently and effectively� This especially applies to the Knorr-Bremse purchasing organization with its decentralized structure� Buyers need standardized processes to make objective and transparent decisions that can be easily compared� In addition, tools assist us in guiding all involved parties in the company through these processes�

Our processes define a specific series of steps for identifying new suppliers, for example, outlining how suppliers are audited, how approvals are obtained and who then enters them into our systems� Tools help define other purchasing processes as well� We employ a purchasing platform to simplify and standardize cooper-ation and communication between our buyers and our suppliers�

This platform, which is primarily used for RFQs and auctions, forms a link between our processes in different departments and locations and those of our suppliers�

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Tools & Processes

Our Supplier Relationship Management (SRM) system, which has already been rolled out in most of our locations around the world, integrates our core Indirect Purchasing processes� SRM links re-quester, Purchasing and supplier in a single system from start to finish� In many locations we have achieved a high degree of auto-mation in our operational purchasing processes by using electron-ic catalogues as well as a call-off process for indirect materials known as “Link” that are triggered by stock levels� This frees Purchas-ing to place an ever greater focus on value-adding activities, such as supplier and commodity group management� We have also launched a standardized worldwide approvals system within our SRM to provide us with additional assistance in enforcing our strin-gent compliance requirements�

In addition to process management tools, we have other in-struments that help us to master the many challenges faced by Purchasing� They allow us to organize our complex structures, which encompass dozens of international locations, different CoCs, thousands of suppliers and enormous quantities of goods and ser-vices� Not only do these instruments provide us with detailed eval-uations and analyses, they also give us the oversight necessary to keep the wheels of Purchasing turning�

For example, we use SAP Business Warehouse to analyze our purchasing volumes and our terms of payment, as well as the per-formance of our suppliers in whatever degree of detail we need� The supplier performance data is also automatically made available to our suppliers on our supplier portal� Another internet platform, our Supplier Early Payment Program, provides our suppliers with an instrument that helps them – and our buyers – to ensure that our terms of payment are met� The Material Price Index is a further use-ful tool� It not only shows price trends for individual materials sort-ed by article number, but also makes it possible to document caus-es and countermeasures�

> Drivers: risk reduction, supplier reduction, savings

> Activities: Identi fication of new suppliers, elimi nation of existing suppliers

SOURCING

> Drivers: ppm-rate, FAI, CPQ-reduction

> Activities: Q-reports, workshops with problem suppliers

QualIt y

> Drivers: Inventory, coverage of InSupply tools

> Activities: Implementation of replenishment models and consignment stock with suppliers

LOGISTICS

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Purchasing controlling

Purchasing targets and key performance indicators (KPIs) are deter-mined by our strategic planning, which in turn is based on the overall corporate objectives of the Knorr-Bremse Group� The focus is on the two priorities at the heart of our Purchasing approach: Total Cost of Ownership (TCO) and availability of goods�

It goes without saying that prices play an important role in Pur-chasing� However, it is not the purchase price alone that deter-mines the success of Purchasing and thus of the company as a whole� For one thing, we must keep an eye on all costs associated with the purchase of the product� The availability of the outsourced services, materials or components also plays a decisive role� It is our job to ensure they are obtained at the best possible prices, that the specified quality standards are met, and that they are available to our internal customers when they are needed, while keeping in-ventory levels to a minimum�

Four main KPIs are used to monitor these requirements: paya-bles, on-time deliveries, number of suppliers and cost savings� We have also established KPIs to track compliance with and fulfillment of defined purchasing processes� One example of this is eCat, which measures the degree of automation in our ordering process-es for indirect materials; another is classic contract coverage rates for non-disclosure or master supply agreement�

To use our defined KPIs effectively, we must also operate a sus-tainable monitoring and control cycle� This is the only way to iden-tify developments at an early stage and define the right measures in conjunction with local and central departments, ensuring that key Purchasing concerns are met� The objectives for all areas of In-direct and Direct Purchasing are determined with these same con-siderations in mind – and are always closely based on the targets defined in our strategic planning�

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Sourcing logistics

Knorr-Bremse is represented in numerous locations on every conti-nent, and each location has a multitude of unique regional charac-teristics� By applying our standardized purchasing logistics we are aiming to foster best practice approaches and leverage synergies around the globe� Here we must walk a careful line� On the one hand, uniform Group standards are essential to meeting this objec-tive� On the other, we must always keep local conditions in mind to prevent overarching Group standards from negatively impacting the performance of the individual locations�

Our InSupply programme allows us to meet these challenges in an intelligent manner� The classic sourcing model – a normal order in which a specific amount of a specific article is ordered from a supplier to be delivered on a specific date – has been refined and taken a step further� The goal is to establish a high level of security of supply while providing an optimal balance of short call-off times, low inventories and the most attractive prices possible�

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Use

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SeCuRiTy Of SuPPly

imPlemenTATiOn Of inSuPPly

mOdelS

STOCk COST

> Short call-off times and small

lot sizes> Consignment process

> High degree of automation

> Use of IT systems

> buffer stockat the supplier

> Long-termframe contracts> Regularly transmitted forecast data

Sourcing logistics objectives

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Our toolbox of sourcing models helps us find the optimal form of sourcing for each of a wide spectrum of articles at our different lo-cations� It primarily consists of five models which can be classified as plan-, consumption- or other production-driven methods� In most cases the models are based on long-term contracts between us and our suppliers�

One classic model is the scedule agreement, which provides a framework for us to regularly communicate automated forecasts and call-offs to the supplier� This gives the supplier a good over-view of upcoming demand� We, in turn, profit from a high degree of process automation, reducing our manual input and boosting our flexibility�

In our Supplier Managed Inventory (SMI) model, we define minimum and maximum stocks of an article which the supplier can maintain through flexible deliveries� We use a web portal to com-municate demand and inventory data to the supplier on a daily basis� The supplier uses this information to schedule deliveries of the article autonomously� This degree of freedom allows suppliers to make their own production processes more efficient�

The Kanban model uses actual consumption of materials as the basis for planning deliveries of goods� In this cycle, production requirements are covered by the supplier replenishing stocks after an empty container signals the need for a predefined quantity of the article� To avoid fluctuations and supply bottlenecks, with this model too the supplier receives regular forecast data�

In just-in-time sourcing, we do not transmit our call-offs until the production order has been authorized – a form of just-in-time� Based on our regular forecasts, the supplier establishes a buffer stock that can be used to deliver at the short notice required� This model allows us the highest degree of flexibility and low buffers – but only makes sense if the supplier is able to respect the short lead times�

POS Kitting sourcing is similar to just-in-sequence sourcing, but is only used for “C” Class components� This model is based on variable kits which are commissioned by a “C” Class component provider after a production order has been approved, and supplied directly to the active production line�

To help our buyers select and apply the most suitable model in each case, we have developed the InSupply Control Cycle� This helps us use the right model to source the relevant components in the required quality and amount� Standardized processes ensure a uniform application� Purchasing works with each location to regu-larly assess the effective implementation and optimized utilization of the different models�

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Sourcing logistics Sourcing logistics

8Employees

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The skills, motivation and dedication of Knorr-Bremse employees are essential to the long-term success of the company� Our active culture of corporate values, which we call “Growing with Values,” holds the key to attracting the best and brightest, supporting their professional development, fostering their talent and retaining them in the long term�

Employees in Purchasing are responsible for a large share of the value added across the Group� Because they represent its interests – within the company on the one hand, in the sourcing markets on the other – they occupy a special position�

The employees in our purchasing organization carry out many different tasks with clearly defined requirements� On the one hand they face the not-insignificant challenge of reacting flexibly and appropriately within our three-dimensional organizational struc-ture� But at the same time this results in an attractive level of auton-omy in their decision making� Combined with a certain hands-on mentality, this gives employees a chance to demonstrate their entrepreneurial qualities� Another attractive aspect of working in Purchasing is the many opportunities afforded by our numerous worldwide locations and projects, which allow us to regularly offer our employees short- and long-term international assignments�

Certain competencies are, of course, essential to working in such a global environment, such as a degree of cultural awareness and the ability to network� Within Purchasing there are formal net-works such as regional purchasing conferences� At the same time

our employees are required to form and proactively manage their own networks outside our purchasing organization as well�

Part of the employees’ power to act and make decisions con-cerns identifying and using the right instrument from the Purchas-ing toolbox� For example, employees might use our instruments to arrange multi-year partnership agreements, negotiate specific pric-es or complete total-cost analyses of complex purchasing deci-sions� To work effectively with partners within our company and lay the groundwork for, make and act on decisions, employees need a high degree of expertise as well as knowledge of broader contexts and relationships� These are precisely the skills in which the mem-bers of our Purchasing team excel�

It is our responsibility to provide each of them with the training they need to do their jobs and to actively promote the develop-ment of high potentials� We offer professional and attractive train-ing and continuing professional development opportunities, both through the Knorr-Bremse training program as well as a specialized Supply Management Academy�

9Code of Conduct

Guidelines for behaviorKnorr-Bremse is a reliable partner that offers its customers the best service and quality and, as a healthy corporation, provides job se-curity� Our business is built on the foundation of our binding Code of Conduct, which applies across the entire Group� Our system of values also encompasses guidelines for behavior by which we measure our daily actions�

employeesCONFIDENTIALITYConfidentiality is extremely important to us� All information about our activities that has not been published or entered the public domain, is handled confidentially by our employees� Specific knowledge they have gained as a result of their employment with us is not used for other purposes�

AVOIDING CONFLICTS OF INTERESTWe avoid situations in which our own financial or personal interests conflict with those of the company or its business partners� In their contacts with existing or potential customers, suppliers, contrac-tors and competitors, our employees act in the best interests of Knorr-Bremse and exclude any personal advantage to themselves, their families or their friends�

INVITATIONS AND GIFTSOur employees conduct their business in such a manner that no personal debts or obligations are incurred� In making business de-cisions, they do not allow themselves to be influenced by any sort of gifts, incentives or other benefits� They know that accepting such incentives exposes Knorr-Bremse to legal risk and harms our busi-ness relationships as well as our reputation� For this reason our em-ployees are not allowed to directly or indirectly request, accept, of-fer or grant any unauthorized incentives, whether in the form of monetary payments, gifts or other services or benefits�

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SuppliersWe also expect our suppliers to comply with a comprehensive code of conduct� Knorr-Bremse is a member of the UN Global Com-pact, which we consider an important and globally recognized frame of reference in this respect�

THE GLObAL COMPACT INCLUDESTHE FOLLOwING KEY PROVISIONS:

In addition to complying with the law, suppliers commit to a zero-tolerance policy towards all forms of corruption and bribery� They respect the human rights of their employees, guaranteeing them equal opportunities and treatment regardless of race, nation-al or social origin, disability, sexual orientation, political or religious beliefs, gender or age� Companies also respect the personal dignity and freedom of each individual and do not tolerate any unaccept-able treatment of their employees� They commit to providing fair remuneration, complying with the maximum working hours de-fined by local laws, and abolishing child labour�

Suppliers assume responsibility for the health and safety of their employees, minimize risks and take the best possible preven-tive measures against accidents and occupational illnesses� In addi-tion, they respect legal requirements and international standards of environmental protection� They pursue continuous improvement in this area, minimizing the impact on the environment as far as possible and applying an effective environmental management system�

Code of Conduct Code of Conduct

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Notes Notes

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knorr-Bremse Systeme für Schienenfahrzeuge GmbH

Dr� Tobias Buck, R/PU Moosacher Straße 80 80809 München Germany

Tel�: +49 89 3547 180464 E-Mail: Tobias�Buck@knorr-bremse�comwww�knorr-bremse�com

March 2013

knorr-Bremse Systeme für Schienenfahrzeuge GmbH

Hartmut Sievers, R/PUD Moosacher Straße 80 80809 München Germany

Tel�: +49 89 3547 1622 E-Mail: Hartmut�Sievers@knorr-bremse�comwww�knorr-bremse�com

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